Banks shy away from farmers over waiver culture
Government debt relief to small holder farmers has seen most lenders become hesitant to offer loans.
According to a report by the Kenya Bankers’ Association (KBA), expectation of loan waivers has prompted farmers across the country to stop loan repayments to banks.
KBA head of research and policy Jared Osoro said regular interest rate and penalty waivers by the government has added pressure on banks that are already grappling with growing non performing loans.
“There has been skewed funding away from agriculture. This has been brought about by some factors which include high services costs due to small deal sizes, real and perceived risks and poor credit culture due to government intervention such as debt forgiveness. This has seen commercial banks reluctant to customize credit products to accommodate small borrowers,” said Mr Osoro.
Lack of sufficient funds to farmers has seen the sector stall between three to six percent with commercial lending to the sector remaining low accounting for four percent of the total lending portfolio.
Mr Osoro said banks ought to leverage on technology and product linkages such as insurance to support farmers.
The report further states that commercial lenders should develop specialized lending products that cater for diverse short to medium term credit need of SMEs.
“The targeting of resources by commercial lenders is heavily skewed towards the large scale and highly integrated agricultural outfits as opposed to the small-scale enterprises that dominate Kenya’s agricultural sector,” added Mr Osoro.
KBA chief executive officer Habil Olaka says banks are also not offering financing to small scale farmers because of the risk associated such as chances of default due to low level of profitability.
“The funding that is directed to agriculture is small just about five percent. There is possibly lack of enabling environment that is given to small holder farmers who are contributing significantly about 70 percent of the total output coming from the small holder farmers,” said Mr Olaka.